How do I conduct my due diligence before an auction?

10 Replies

I've been looking into bidding on properties at the Pinellas County Florida foreclosure auction. I want to make sure that I'm not surprised by any lien or other mortgages. Pinellas County has their public records accessible from the net so I've been looking there for liens. I've noticed some properties have more than one mortgage, or at least debts to multiple banks. Would I be responsible for the debts to the banks that didn't file the LP once the sale goes through or are they wiped out once the house is sold?

Also, aside from any actual damage to the house, what are some of the pit falls that I should look out for when buying at a trustee sale? I've read a few threads and blogs on here but couln't find anything comprehensive on the subject. If anyone could point me to something that would help I would greatly appreciate it. 

I've also spoke to 2 title agents and they told be I could have them run a search for title but that it would be about $150 per search. I would like to be bidding on multiple properties a week and that is an expense I am hoping to be able to avoid.

I'm hoping someone out there has experience purchasing at trustee sales in my market.

-Danny

If it's a first mtg foreclosing, all other mortgages and private liens will get wiped put. Watch out for other gov't liens, code violations, property taxes, and recorded/unrecorded HOA debts, as these all remain with the property.

We do something similar here.  Some of the auctions require you to close immediately and some call you a few days after to coordinate the closing at which time you could cancel.

We do run title searches on all homes we bid on and if you have a good relationship with a title company they will run them for basically nothing as long as you bring them business. Most likely in the beginning you will have to pay that amount. 

If the home is occupied you most likely will have to roll the dice on the condition of the inside and assume the worst. 

Good luck!! Some of the best deals come this way.

@Wayne Brooks Where would I look besides public records for the types of liens that follow the home? Would I need to track down the manager of the HOA to find out if there are any unrecorded HOA debts?

@Curt Davis   At our auction you have to have 5% of your bid price in your accountt at the time of bid, and we have to make our purchase by the end of the next business day or lose our 5%. Do you know if the title searches actually cost the title co any money? I offered to pay them $50/search or work out a monthly plan and they said they didn't have any wiggle room on searches but could get me really good rates on closing and insurance fees, $295-$395.

@Steve Babiak  Thanks for the links. So much for getting to bed early!

Besides drive-by inspections (and trespassing) the only thing you can really do is an O&E to see what other encumbrances are on the property you may be purchasing.  Pretty much what @Curt Davis  said.

$150 for a lien search is too much.

Ok, longer answer as I have extensive experience in your county and your topic.

To buy at auction you need to first have a list of upcoming properties you want to own.

1. Whittle down the list based on drive by's and stats.

2. Check list daily to see if auction is canceled, check to make sure you have your 5% of what you plan on bidding in escrow at clerk's office.

3. 72 hours before the auction starts order a lien search. Lien search should be delivered in 24 to 48 hours or same day if you do a rush order.

4. Review lien search, ask attorney about anything you don't understand.  $200 for 1 hour with an attorney to review title info you don't get can save you $1000's going forward.

5. Call utitlities to see if there are any un-filed liens or large balances, as those won't be on a lien search, call city to see if there are any zoning issues or unfiled assesments. (Lien searches only check official records at county, so if municipality doesn't file things which happens sometimes you are still on the hook.)

6. Make sure you have the other 95% ready to go out if you win the auction.

7. Bidding day make sure you don't go a nickel over your planned bidding price.  If the house is worth $300k and you are the highest bidder at $10k, you did something wrong and don't pay the other 95% and call a real estate attorney immediately. (first time buyer)

8. If the house is worth $300k, and you win at $220k, good job, call a real estate attorney to make sure everything is "kosher" title wise before paying the other 95% (first time buyer)

9. Rinse and repeat every week.

Even when being careful you can get burned as a newbie at the auction... just watch for red flags in the court docket for these properties.  Excessive litigation, red flag, tons of QCD, red flag, lots of aliases by previous owner and many mortgages, fraud, red flag.

Be careful of IRS liens.  We were set to buy a foreclosed house several months ago and even then though it was foreclosed, there was still an IRS lien on the house.

There are risks buying at auctions, no question. You can also make a lot of money buying at auctions. Make sure you know your numbers. What is it worth "as-is" and what is the ARV? Since you don't have access to the property before bidding, assume higher repair costs and adjust your bid price accordingly. You need to leave yourself some room for any surprises. Call a different title company. There are several to choose from and one of them is likely to help you out. Just because there are liens on the property that doesn't mean you need to walk away. Lower your bid price by the amount of the lien(s). Make sure you know the terms at the auction. If the auction is not online does the 5% down payment need to be cash or cashiers checks? What is the deadline for closing after the auction? Do you have the funds to close on the property?

In Florida auctions, the 5% needs to be in the Clerk's account prior to bidding, then the remainder of the bid price plus Clerk's Fees, Doc Stamps, etc need to paid by noon the following day.  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here